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The global economy is set to improve going ahead with global GDP predicted to grow by 3.5% inCY2013 and 4.1% in CY2014. The worldwide IT sending is expected to grow at ~4% CAGR for the nextthree years (CY2013-15) while the global sourcing is set to grow faster at ~9% during the same period.India continues to be the global sourcing leader, but the global IT-BPM sourcing spend market ofUS$124-130bn accounts for only ~10% of the global IT-BPM spend, which implies that the sourcingmarket is huge and presents immense untapped opportunity. Indian IT-BPM firms are well positioned to

take advantage of these trends by working towards developing new capabilities, servicing the entire ITservices value chain and expanding their focus to new geographies, technologies and industry verticals.

Indian companies grabbing market share vs global peers: Top IT service players globally have gained~110bp per annum share annually since the last five years. While the worldwide IT services market hasposted a five year CAGR of just ~3.5% and global sourcing market having posted a CAGR of ~9%commensurately, Indian software services revenue has posted a 16% CAGR (almost 2x of growth inglobal sourcing); primary reason for the same being the labor arbitrage or cost savings to clients.

Indian IT - Large cap companies leading the growth: The top-5 Indian IT services vendors haveincreased their share of Indian IT exports by ~135bp per annum.This supplements the fact that Indianlarge-cap players have been surpassing mid-cap companies in terms of grabbing market share. However,

during FY2013 the growth rates of Infosys and Wipro came down substantially as compared to its peersas well as industry average because of company specific issues due to which the tier-I Indian IT revenuesare expected to grow by ~11.8% yoy as compared to a CAGR of ~21.7% reported by these companiesfromFY2007-2012.

Worldwide IT spending

On the face of a volatile economic environment, 2012 recorded a steady growth for technology andrelated services sector, with worldwide spending of US$1.9tn, a growth rate of 4.8% yoy. Of theworldwide technology spend of ~US$1.9tn in CY2012, software products, IT, and BPM servicescontributed ~US$1.1tn (58%) while hardware accounted for the balance ~US$797bn (42%). Worldwide,hardware spending grew by 7%, IT services spend increased by 3.3%, BPM grew by 4.9% and spend onsoftware products increased by 3.3%. In line with growth in global IT spend, the global sourcing market

also grew to US$124-130bn, ie a growth of 9% over 2011, which is nearly twice the growth in global ITspend. As per Nasscom, lingering concerns about global economy also impacted contracts in 2012 asvolumes fell by ~13%. However, average contract value remained fairly steady at US$21bn largely on theback of number of mega deals signed in the BPM space. As per Nasscom, accelerated IT spending islikely to be witnessed in 2013 with areas like mobility, cloud, and social media expected to grow muchfaster, thereby shifting the overall spend in technology. We expect worldwide IT spending (excludinghardware) to post a three-year CAGR of 4.4% with growth being led by emerging industry verticals suchas retail, energy & utilities and life sciences & healthcare. Worldwide IT services spends have grown at aCAGR of 3.4% over the past 8 years. New requirements in legal and regulatory work, processimprovement and demand for new applications are expected to aid growth in legacy industry verticals BFSI and manufacturing. The telecom industry vertical is expected to remain sluggish in the near term.The year witnessed a pronounced shift to smaller contracts while mature verticals and segments were the

growth drivers for global sourcing deals.

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Indian IT industry

The Indian IT services and BPM industry is an integral part of the global sourcing strategy and has beenincreasingly contributing to the domestic economy over the years. During FY2013, IT industry in India isestimated to aggregate revenues of US$108bn in FY2013, with the IT software and services sector(excluding hardware) accounting for US$95bn of revenues. Exports revenues (excluding hardware) areestimated to be at US$75.8bn in FY2013, up 10.2% yoy, and contributed ~80% to the total IT-BPMrevenues (excluding hardware). Domestic IT-BPM revenue (excluding hardware) is expected to grow at2% to US$19.3bn in FY2013. As a proportion of national GDP, the sector revenues have grown from1.2% in FY1998 to ~8% in FY2013. For CY2013, growth for the Indian IT industry exports has beenpredicted to be in the range of 12-14%. The growth rate for the Indian IT sector has moderated in the lastcouple of years from 40% CAGR (FY2003-07) to ~15.9% CAGR (FY2007-13E). The key reasons for thedecline are: 1) increasing revenue base, 2) comparable offshore employee base of MNCs such as IBM,

Accenture, Capgemini, 3) weak macro-environment over the past few years and 4) increasingcommoditization of services like ADM.

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